Cheap Stakes in Great Real Estate
I’m a dyed-in-the-wool dividend stock junkie.
That’s why you may be surprised to hear me recommend real estate as one of the best ways to grow your wealth.
But the long-term, historical evidence is undeniable: Real estate has beaten the pants off of stocks.
A $100 investment in the broad-based U.S. Real Estate Index in 1972 would be worth $6,839 today. That is 68 times your money and more than double the S&P 500’s return over that same period.
How about over the last 20 years? From 1998–July 2018, the U.S. Real Estate Index has compounded an average annual return of about 11.5%. That’s 3–4% more than other U.S. stock market indexes.
And — that period includes the U.S. real estate bust and financial crisis of 2007–08!
And don’t forget that this real estate “double” is while we are enjoying the longest bull run in stock market history.
This month, I’ve found a way to profit from real estate without buying property. It’s as easy as buying a stock. And this little-known fund pays out a monthly dividend…
You can benefit from owning real estate without actually having to own real estate.
You take on a lot of financial risk when you own real estate. These include:
- Real estate is very illiquid
- Your investment is concentrated in small areas
- You must sign for mortgages with personal liability
- Potential lawsuits.
The risks and headaches of owning property go on, but — as I mentioned — there is a much easier, low-stress way to invest in real estate without all the hassles of being a landlord. I’m talking about real estate investment trusts, or REITs.
There are four main reasons why REITs are superior to directly owning real estate:
#1 The REIT Economy of Scale: The REIT business model is simple — take millions of dollars from investors and invest in high-end properties that we mere mortals can only dream of. Because of their size, REITs can borrow at lower interest rates, invest in higher-quality properties, rent them out to first-class tenants and have full-time professional staff to manage those properties.
#2 REITs Offer Maximum Value and Diversification: REITs are better than private investors at increasing the value of properties once they buy them. REITs have deep pockets and can finance big-dollar improvements — such as large-scale expansion, multimillion-dollar remodels and rezoning applications — that can dramatically increase rental income and the property value.
#3 Low-Leverage REITs: Sure, some private investors pay cash for investment properties, but most take out large mortgages to finance the purchase — often leveraging to the max 80% loan-to-value. Leverage, of course, increases risk, which is why the average REIT uses only 30% leverage today, not 80%.
#4 REITs Offer Daily Liquidity: It is common to pay 5–10% of a property’s selling price when you sell. Ouch! Not only that, but it can take several months to sell real estate. But REITs trade just like stocks, which means that you can buy or sell anytime you want with minimal transaction costs.
REITs are especially attractive to income-focused investors because they must, by law, pay out 90% of their earnings as dividends, which results in dividends that are TWICE as high on average as those of S&P 500 companies.
You should strongly consider diversifying your assets with REITs.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
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